Mexico Lower House Starts Oil Debate as Opponents Hijack Chamber

Mexico’s lower house began debating an energy bill passed overnight by the Senate, with the session moving to a cramped auditorium and bypassing committees after the initiative’s opponents seized control of the permanent legislative chamber.

The chamber’s leaders directed debate from a makeshift podium at the front of the assembly space as many lawmakers stood at the edges due to lack of seating. The venue shift came hours after lawmakers from the Democratic Revolution Party, or PRD, and allied parties that oppose changing the constitution took control of the house floor. They chained the chamber doors shut to keep rivals out and stacked office chairs in doorways to reinforce their barricade.

The Senate yesterday passed the bill that supporters say will boost economic growth and opponents say will funnel the nation’s resource wealth to foreign investors. It would change the Mexican Constitution to permit companies such as Exxon Mobil Corp. and Chevron Corp. to drill for oil for the first time since 1938 and allow production sharing and licenses for outside companies that will also be able to log crude reserves for accounting purposes.

“The PRD knows that they don’t have the votes to stop this; if they did, they wouldn’t be taking these kinds of measures,” Jorge Chabat, a political scientist at the Center for Economic Research and Teaching, a Mexico City-based university, said in a phone interview. “They’re trying to delay, to take a symbolic stand to show their supporters that they did everything they could to prevent the energy reform.”


The bill is supported by the PRI, which President Enrique Pena Nieto returned to power one year ago; the National Action Party and the Green Party. Together, the parties have the two-thirds majority needed to approve the proposed constitutional change.

“You’re traitors to your country,” Ricardo Monreal, a Citizens’ Movement lawmaker who opposes the bill, shouted at opponents during a speech from the lectern, referring to the president as “Enrique the First.”

“This is a perfect dictatorship,” he said. The PRD and allies say Mexico should hold a voter referendum on whether to allow private investment in the energy industry. Silvano Aureoles, the PRD’s leader in the chamber, appealed to lawmakers to allow the bill to be debated first at the committee level.

Manlio Fabio Beltrones, leader of President Enrique Pena Nieto’s Institutional Revolutionary Party, or PRI, in the lower house, said the PRD’s seizure of the chamber is undemocratic, and lawmakers should skip the committee stage and proceed to a full house debate. Under streamlined debate rules announced by congressional leaders, the bill could get a vote later tonight or early tomorrow.

Unexplored Reserves

Mexico is the world’s ninth-largest oil producer, according to the U.S. Energy Information Administration, and possesses the biggest unexplored crude area after the Arctic Circle. Industry analysts and the bill’s authors say the overhaul will reverse eight years of oil output declines for Petroleos Mexicanos and increase production to as much as 4 million barrels per day by 2025.

“With reform there will undoubtedly be a spurt of production growth as Mexico is a very rich hydrocarbon area both onshore and offshore,” Ed Morse, the New York-based head of commodities research at Citigroup Inc., said in a phone interview. “Realistically, it could double the amount of oil that Mexico produces.”

Falling Production

Mexico’s oil production has fallen 25 percent to 2.5 million barrels per day from a high of 3.3 million in 2004, according to the state-owned oil company known as Pemex. Should Mexican output reach 4 million barrels daily by 2025, it could surpass Canada to become the world’s fifth-largest producer, given current production levels.

Natural gas production would almost double to as much as 10.4 billion cubic feet by 2025 from current output of 5.7 billion feet, according to the bill. The initiative could push Mexico to become one of the top-five crude exporting countries in the world and a natural gas exporter, Morse said.

Pena Nieto’s government forecasts the initiative will attract investment and spur production that will boost Mexico’s annual gross domestic product growth by 1 percentage point by 2018. The Finance Ministry projects the economy will expand 1.3 percent this year, down from 3.9 percent in each of the past two years and the least since the 2009 recession.

Board Reduction

The bill also approves the removal of all five representatives of the Pemex workers’ union from the company’s board of directors. Under the new legislation, Pemex’s board would be trimmed to 10 from 15. It would consist of five government members, including the energy minister as board president, and five professional advisers.

Easing restrictions that have barred the largest international oil explorers from drilling in Mexico for three-quarters of a century will help Pemex revive output and crack vast shale formations, said Brian Youngberg, a St. Louis-based analyst at Edward Jones & Co. who covers oil producers including Chevron and Occidental Petroleum Corp.

Opening the oil industry to foreign drillers could unleash a wave of exploration equaling Iraq in recent years, Youngberg said. Mexico’s deep-water prospects in the Gulf of Mexico would be attractive to Exxon and Chevron, while shale tracts would interest EOG Resources Inc. and ConocoPhillips, he said.

“It is looking better every day but it is not yet official,” Youngberg said in a telephone interview on Dec. 9. Enticing foreign investment “should jump start production and get it moving back in the right direction,” he said.

Before it's here, it's on the Bloomberg Terminal.